Proposal to Block Social Security Tax Rise Defeated

By Spencer Rich and Art PineBy Spencer Rich and Art PineMarch 2, 1978

A proposal to block next year's big scheduled Social Security tax increase was rejected by the House Ways and Means Committee yesterday, but only by one vote, 19 to 18, and only after supporters were told they could revive the issue later this session.

The vote came after a three-hour confrontation in which Chairman Al Ullman (D-Ore.), the Democratic leadership and the White House joined forces to oppose any rollback in the scheduled tax. Reps. Abner J. Mikva (D-Ill.) and William A. Steiger (R-Wis.), the AFL-C10 and business groups formed an unusual coalition in favor of the rollback.

After the vote, Steiger, Mikva and others predicted that the proposal to cut back the Social Security tax would be raised on the House floor or later this year in committee with an excellent chance of enactment.

However, Rep. Barber B. Conable Jr. (R-N.Y.), who sided with Mikva and Steiger, seemed skeptical that Ullman would allow meaningful committee action later. "It's settled," he said. "My impression was this was the decisive vote."

The Social Security vote came as the Ways and Means Committee drew up its report to the House Budget Committee on the tax and spending legislation it will probably pass this year.

Had the payroll tax rollback proposals passed, the action would not have been binding, but would have been a strong "signal" to the Budget Committee and the nation that Ways and Means intended to cut back scheduled Social Security taxes and fund the system, for the first time, in part from general treasury income tax revenues.

Ways and Means postponed until today a decision of what size income tax cut to recommend for inclusion in the fiscal 1979 congressional budget resolution. The administration has requested $25 billion in net tax reduction, but the committee is under pressure to tack on further cuts.

Ways and Means did approve several significant recommendations to the Budget Committee on what it intends to do: these too are non-binding, but foreshadow later committee action on substantive legislation:

It recommended $400 million in fiscal 1979 "fiscal relief" to the states to help them defray welfare costs.

It recommended $270 million as a first installment on a new program in which, whenever a state has exceptionally high unemployment rates, part of the cost of the resulting unemployment insurance benefits would be paid from general income tax revenues instead of the state's unemployment tax.

It advised the Budget Committee that it does not expect to reduce the federal unemployment tax from seven-tenths of 1 percent to five-tenths, as the administration has proposed. The money is needed, the committee said to reimburse the treasury for $8.8 billion it laid out for federal unemployment insurance costs not previously financed by any tax.

It advised the Budget Committee it expects to impose income taxes on unemployment benefits received by high-income taxpayers during spells of unemployment.

It indicated it expects to allow a voluntary hospital cost-containment bill to go into effect.

Before the 19-to-18 vote, Steiger declared that "there is a great, strong feeling on the floor of the House about the burden of taxes we have imposed on the American people" in last year's Social Security bill, which set out a new schedule of higher payroll taxes scheduled to take effect next Jan. 1.

"People are going to be running for reelection in the fall of 1978," said Steiger, and they will brush aside all objections on the floor and vote to shift the payroll tax burden. He said raising money from payroll taxes hits the worker and the small businessman for more heavily than does financing Social Security in part from general treasury revenues (which are raised from a progressive income tax and corporate taxes).

Steiger offered one motion to wipe out the $3.6 billion in Social Security tax increase scheduled for 1979 and make up the loss to the Social Security trust fund by in effect dipping into general treasury funds. It lost, 19 to 18. A second Steiger move, to block the scheduled increase and roll back the existing 6.05 percent tax rate to 5.85 percent each on employer and employe (which would have reduced Social Security revenues $5 billion), also lost, 20 to 17.

Opposing Steiger, Ullman said a shift to general-revenue financing for Social Security would be "one of the massive decisions of our times" and should only follow full-scale hearings. Ironically, last year both chambers rejected such a proposal out of hand when President Carter advanced it.

Now that constituents are beginning to scream, general-revenue financing has begun to pick up support, but the administration doesn't want to reopen the Social Security question.It prefers to offset the higher burden of Social Security taxes for individuals by giving them personal income tax cuts.

At one point in the dispute yesterday, the tally appeared so close that it was difficult to predict which side would win.

However, Rep. Joseph L. Fisher (D-Va.) suggested that instead of reaching its decision this early in the year, the committee simply inform the Budget Committee that it intends to cut all U.S. taxes in the aggregate by the $25 billion sought by Carter -- and will decide later whether part of this cut should be in Social Security taxes.

Fisher said this would allow the committee to postpone a decision on Social Security tax cuts without forgoting the possibility. Ullman then said he would agree to this and would allow proposed Social Security cuts to be considered later in the year, though leaving it fuzzy whether it would be on the income tax cut bill, which would be the best vehicle.

Fisher's proposal, accompanied by Ullman's statement, seemed to offer a good way to postpone the issue until later in the year, and Steiger's two motions were then beaten. Conable said later he believes Ullman will rule out of order any Social Security amendment to the tax bill that he doesn't like.